Weekly Access
January 20, 2012
“We contend that for a nation to try to tax itself to
prosperity is like a man standing in a bucket and trying
to lift himself up by the handle.” – Winston Churchill
The following graphic is telling about the result of these
policies.
Lately, much ink (or online webpages) was spilled over
discussing presidential candidates’ and other important
people’s tax returns. We will avoid opinions here and
leave policy to the decision makers while reporting the
facts in this note. The chart below shows the highest
marginal income tax rate over the past 100 years.
2011
2004
1997
1990
1983
1976
1969
1962
1955
1948
1941
1934
1927
1920
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1913
Top Marginal Income Tax Rate
After a decline to 24% in the Roaring Twenities, top
rates jumped to 80-90% during the 40’s and 50’s,
followed by sharp decline in the 1980s. Below is the top
long-term capital gains rate.
Top Capital Gains Rate
Source: New York Times
50%
40%
30%
20%
2006
2002
1998
1994
1990
1986
1982
1978
1974
1970
1966
1962
1958
0%
1954
10%
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The expiration of the Bush tax cuts in 2013 will be a big
issue going into election season. The top marginal rate
is scheduled to rise from 35% to 39.6% and dividends
will be taxed as ordinary income instead of the
favorable capital gains rate, which is scheduled to move
from 15% to 20%. In the long-term picture, these rate
changes seem rather nominal.
6685 Beta Drive, Mayfield Village, OH 44143 ● P 440.605.1900 ● F 440.605.0200 ● www.aurumadvisory.com ● www.aurumwealth.com
Given the secular decline in labor’s share of income
gains, along with the disparity among social classes
increasingly reported by the media, the top marginal
and capital gains rates will likely rise sooner than later.
Many argue higher capital gains rates will slow capital
investment and see assets shift away from the stock
market. In an interview with Charlie Rose, Warren
Buffett addressed this quite candidly:
“I have yet– and I’ve worked with capital gains rates of
39.9 percent and 36 percent and 25 percent, I have yet
to hear one person say to me, If I call you in the middle
of the night Charlie and I say,’ Charlie I’ve got this hot
investment idea.’ Your reaction is not to say, ‘No matter
what the tax rate, forget it, I’m going back to sleep
because the capital gains rates are too high.’
No, what you’re going to do is you’re going to say, ‘Tell
me the name, quick, Warren, before you change your
mind’ …And I was running money 40, 50 years ago
when rates were much higher and I never had one
person to show the slightest reluctance to take an
investment idea and run with it.”
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advice or recommendations with respect to asset allocation, any
particular investment, or any tax advice. Persons should not use
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primary reason for investment or tax decisions.
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Robert Reich, “The Limping Middle Class” September 3,
2011.
http://www.nytimes.com/2011/09/04/opinion/sunday/jobswill-follow-a-strengthening-of-the-middleclass.html?pagewanted=all
6685 Beta Drive, Mayfield Village, OH 44143 ● P 440.605.1900 ● F 440.605.0200 ● www.aurumadvisory.com ● www.aurumwealth.com